Thusitha Company?s plant in Wonderland manufactures two products: Amala and Abula. Abula has a more complex design and requires more setup time than Amala.

Setups for Amala require two hours on average while setups for Abula require three hours. Thusitha?s setup department employs 10 workers whose average wage is $10 per hour; fringe benefits cost 38% of the wages. Other costs for setup activities amount to $25 per setup. Thusitha plans to use all 10 workers for 40 hours each for the first three weeks of the winter quarter. The amount of work for these three weeks is as follows:

a) Based on the information presented above, determine the actual setup activity cost driver rate based on (1) the number of setups and (2) the number of setup hours.

b) Is either of the two activity cost driver rates or some other rate appropriate in this case? Explain why.

Transcribed Image Text:

WEEK 1 2 3 NUMBER OF SETUPS FOR AMALA 85 90 80 NUMBER OF SETUPS FOR ABULA 75 70 80 WEEK 1 2 3 NUMBER OF SETUPS FOR AMALA 85 90 80 NUMBER OF SETUPS FOR ABULA 75 70 80

Answer rating: 100% (QA)

a WEEK NUMBER OF SETUPS FOR AMALA NUMBER OF SETUPS FOR ABULA 1 85 75 2 90 70 3 80 80 Number of set up average hours Amala 2hrs Abula 3hrs Number of employees 10 Average wage 10hrs Fringe cost 38 of av... View the full answer